New CPI Data Is Moving Markets (What You Need To Know)
Summary
Inflation Outlook: The host reiterates a base-case disinflation trend with CPI likely ranging roughly 2.3%-3.3% absent a major recession or new stimulus-driven velocity surge.
Bond Market Dynamics: He emphasizes that US Treasuries and yields primarily reflect growth and inflation expectations, not debt levels, deficits, or foreign selling.
Labor and Rates: Despite multiple Fed rate cuts since late 2024, the host argues the labor market has weakened, underscoring that rates reflect the economy rather than control it.
USD Narrative: The commonly cited link between real rate differentials and the US Dollar is questioned, with the host noting it only sometimes holds and often does not over longer periods.
JPY Case Study: Using the Japanese Yen, he shows that despite BoJ hikes and Fed cuts, the yen did not surge due to policy interventions, challenging simple rate-differential models.
Yield Movements: Recent 10-year yield declines are attributed to softer growth/inflation data (revisions and CPI), not changes in debt, issuance, or foreign treasury flows.
Policy Targets: He disputes the notion that the Fed can reliably hit shifted inflation targets, noting a 15-year history of missing the 2% goal on both sides.
Risk Triggers: A recession could push CPI below 2%, while fresh stimulus/UBI could lift it above 3.3%, with policy-driven velocity as the key swing factor.
Transcript
Hello fellow Robo Capitals. Hope you're well. New inflation data really moving the markets and we've got a lot of people talking about how the Fed with a new Fed chair possibly is going to run the economy hot and what does that mean for the dollar for interest rates for future CPI? So, we're going to go ahead and go through the data today, but we're going to try to look out into the future and ask the question, what happens next? The allimportant question. All right, let me do the screen share. Josh is swiping on Tinder somewhere or maybe Grinder. You decide which one is probably more accurate. And while Josh is swiping on Grinder, [laughter] we're going to go over to where do we start? Let's do CPI or excuse me, let's do CNBC. So punchline, guys, the expectation was for 2.5% month overmonth, 3% and it came in low. It came in low. Now, you may be asking yourself, George, in the thumbnail, you're talking about running it hot. Well, how can you say that when the CPI came in lower than expected? Aha, that's we're going to look out into the future. We're going to get into that next, but let's go into the dirty details here. Consumer prices rose 2.4% annually in January, less than expected. The consumer price index for January accelerated. Okay, we got that.3 percentage points from prior month, the lowest since May of 2025, excluding the volatile food and energy. I'm in fact, I'm shocked how what they said food and energy without prefacing with volatile. What is going [laughter] Whoa. Whoa. That's the big news of the day. Forget the CPI. [snorts] [laughter] All right. All jokes aside, get back to a core CPI was up 2.5%. So, headline 2.4 core excluding the volatile food and energy 2.5%. Economist surveyed by Dow Jones. Yes, we know they were expecting a 2.5. So, let's get into the charts, guys. Get a visual representation of what's going on here. This was way back summer of 2022 and we've got to pat ourselves on the back for this one at this channel because I was really talking about inflation here and the survea sickness lockdowns the government's response to the survea sickness causing the supply shortages which really juiced prices along with all the STEMI checks excess aggregate demand artificial temporary aggregate demand by the way and then right here kind of all that stuff stopped. So I I thought to myself, well, I'm going to take a more disinflationary stance. That's my base case. And since right about here, I've said, look, we probably float around this area until we get something big. You know, we get UBI. All right. Now, I'm going to go ahead and get back over to the inflation camp. And if we get a big recession, okay, probably going to drop under 2%. But if we don't get either of those, if we're in this kind of holding pattern, I don't know why we'd go below 2.4, 2.3, and I don't know why we'd go above, call it 3.2, 3.3. And that's exactly what we've done. Exactly what we've done. So, as far as our inflation prediction that we have had on this channel, we've had it spot on. We've had it spot on pretty much going all the way back to the surveys sickness. So, that's really good. But you can see the trend here, and that's what I want to highlight. The trend is obviously disinflationary. Now, I know a lot of you are saying, "Oh, Georgia's understates inflation." Yeah, I get it. I get it. I totally agree with you, by the way. But what we're doing here is we're not saying that goods and services are going up by 2.4%. Look at the CPI. That's not what I'm doing. I'm saying we are seeing disinflationary pressures override everything else. Meaning that right here the real rate of inflation was probably higher than 9%. And today the real rate of inflation probably 2.4. But the trend the trend is most likely the same. Still the same. Okay. So now let's keep going here and we're going to look at the kind of the monthly figures as and you can see this big ramp up with CPI peaking with a month over month at 1.2 two and that was back in the in the uh summer of 2022. We're just saying and then it really falls off a cliff and then since that time lower we had a couple negatives in here by the way and then we get this 2% today month over month. So they point out that there's some economists that say this could be attributed to the government shutdown and I I don't know. They're always trying to just give some excuse as to why something happened, weather, blah blah blah blah blah. And then of course they always have to try to throw Trump under the bus. So they're going to say, "Oh, well the inflation rate would have been lower. It would have been right around the Fed's target if it wasn't for Trump's tariffs. Now, are the tariffs contributing to prices being a little higher than they otherwise would be? Probably. Probably. But my point here is whatever whatever Trump does, they're just going to be they have to always kind of take a stab at him or highlight something that they perceive to be negative. It's something we just expect from the mainstream media. They say at the macro level, US has shrugged off slow start to 2025. At a macro level, it has shrugged off a slow start. Okay. in 2025 and has been barreling forward ever since really now. I know that GDP has is skyhigh and that looks like we're running on all eight cylinders, but I would ask you guys right now in the chat, you know, do do you feel like the economy is booming? Do you feel like in 2025 we were off to the races? My guess is probably not. Okay, let's get back to it here. What I want to do now is go over to the uh let's go over to the actual calendar here just so we can get the overview and what we're looking at right here. You can see the 2% 2% excuse me month over month what we were talking about the annual 2.4 four and then the core at three and then the 2.5. That's what we were referring to earlier. But now let's go over now that we've seen the trend. Right now, let's go over to this idea because I hear it all the time on the mainstream media and especially in social media where the Fed is going to try to run it hot. They're going to run the economy hot. We always hear this. They're going to run the economy hot. Well, why are they going to run the economy hot? Well, because the the debt's too high, because the debt is unsustainable. So, we need to run the economy hot and therefore that gets debt to GDP down. What's interesting about that argument is we never stop and ask why we want to get debt to GDP down. Like why? Okay, it's based on the way you calculate it 100% maybe 120%. Why do we want to get it down? Now, I'm not saying that we don't or we shouldn't, but I'm saying why. Why? What? What's the reason that most people would give as to why we want to get the debt to GDP down? Well, they would say the debt is unsustainable. Okay, what do they mean by that? What they mean by that is if we hover around these levels, let's just say 100% 110%. for a certain amount of time or if it continues higher let's say 120 130 then all of a sudden we are going to cross this magical threshold in the Treasury market where interest rates at the long end of the curve will just skyrocket will just skyrocket because the debt to GDP is just too high and if interest rates skyrocket then this creates this doom loop where the interest rate on the debt goes higher, the overall debt. And that means that it, you know, now all of a sudden that the tax receipts, let's say it's three trillion a year, are 100% go just to pay off the interest on the debt. And then what's going to happen? Well, then the treasuries bust and then no one's going to want our treasuries. And then we're going to have to issue more because we got to pay higher interest on the debt. But those get continually higher interest rates because no one wants our debt and therefore the Fed has to come in and do QE and then that crashes the US dollar. So we all understand, we've all heard this narrative a thousand times. But what we have to start with is the fact that all of this is predicated upon the debt to GDP crossing some imaginary threshold and blowing up the bond market. And what that means is there would need to be a disconnect between growth and inflation expectation and yields. So even though yields have been trading on growth and inflation expectations for the last 75 years in the United States, all of a sudden if we get to if we're at 120% debt to GDP right now, if we get to 121, then all bets are off and we're after 75 years or 100 years or however long you go back, the whole history of the United States, our Treasury market is trade on growth and inflation expectations. Once we go from 120% debt to GDP to 121%, all that changes. All that changes and the Treasury market is no longer going to trade off of growth in inflation expectations. You see, this is what the whole argument is predicated upon and the fact or not the fact but the idea that the Fed controls interest rates and the Fed controls the rate of inflation. Okay. So, now that we've established that the the fundamentals there of the analysis and the narrative, let's go ahead and read this article because now what we're doing is we're trying to project out into the future to see what inflation will be. Let's just say in 6 months, a year, something like that. So, this is uh Daval is the guy's name of BCA Research. I don't know who this is, but the uh headline here on his Zero Hedge post is Worsh likes it hot and will move the Fed's inflation target to 2.5 to 3.5%. Okay. And maybe maybe he does move the target from 2.5 to 3.5%. But immediately you see the flaw. And the flaw in this logic is that the Fed will somehow meet this target. So now let's think it through. The Fed has had an inflation target. I mean, ever since I've been even watching this stuff, but they obviously had an inflation target throughout the 2010s. Were they ever able to meet that inflation target? The answer is no. No. Maybe they did a quarter or something like that. maybe a month, [laughter] but for the most part from 2010 to 2020, they weren't able to meet their inflation target. For them, inflation was too low back then. Remember those days? And then all of a sudden, we had the survea sickness and the inflation rate skyrockets. I mean, we just saw a chart of that going back to this CNBC article. That's what we see right here. And then inflation is way above the 2% target. And to this day, it's still above the 2% target. So wait a minute here. So for the last 15 plus years, 15 years, the Fed has never ever been able to meet their inflation target. Either they've been too low or they've been too high. 15 years. We're not talking about 15 months. 15 years. And they've never been able to do it. But yet now all of a sudden moving forward, we're supposed to assume that if the Fed wants to get inflation from 2.5 to 3.5 or if they want to get inflation to two or one or whatever they want, they're going to be able to do it even though they haven't been able to do it for 15 years. Let's keep going here. So, the Fed will run the economy hot as if they can [laughter] or as if they can just turn that dial because the labor demand supply now in balance both uh demand and supply must expand to keep uh output expanding. And then this assumes that they control the labor market. That just by them going out in there and raise or lowering interest rates, that's somehow going to give this massive stimulus and boost to the labor market. Okay. Well, let's think that one through because the Fed has been dropping rates all of 2025. Remember 2024, uh what was it? uh September of 2024 going into 2025 they dropped interest rates by 100 basis points and how many rate cuts did they have in 2025 right off the top of my head I was it a couple two three something like that so they since September of 2024 let's just say they've cut interest rates by 150 basis points 150 basis points okay great what has the labor market done since that time It's tanked. It's it's it's fallen off a cliff. It's negative non-farm payrolls. It's all these things that we talk about on this channel all the time. So, the labor market is in shambles even though the Fed has been dropping interest rates. So, again, you see what I'm saying? It's the Fed's only tool here is really QE or dropping rates. And when they talk about the labor market, they're really more so focusing on the rate side of that. So even if they do drop Fed funds, are we to assume that this is going to somehow impact the demand supply balance or imbalance? No. Why? It's never done in the past. So why should we assume that it'll have some effect in the future? You see, and what this always goes back to is that interest rates don't control the economy. You guys know this. interest rates are a reflection of what's happening in the economy. So, here we go. Let's keep going. Short-term US real rates will come down further because the Fed will continue to cut even though inflation uh with inflation from 2.5 to 3.5%. And this assumes they can get at that level and today we're at 2.4. Uh the US dollar will continue to weaken given the currency's dependence on real interest rate differentials. This is another [laughter] another fallacy. And I don't mean to pick on this guy because he's just reiterating all these uh mainstream narratives that you hear all the time. So, I don't want to really single him out, but um let's think that one through because do interest rate differentials matter? Yeah, some of the time, but then other times they don't. Like, let me give you a great example. Let's go over to CNBC and let's go ahead and look at uh the yen. So, you guys know that the Bank of Japan has been raising rates, raising rates, and the Fed has been cutting rates like we just said, but during the last year or so, has the yen appreciated dramatically, as you would expect with the interest rate differences? No, it's flat. And by the way, the only reason it's flat is because the Bank of Japan has come in and their politicians, their central planners on multiple occasions and said that they're going to prop up the yen because the yen was getting too weak [laughter] against the dollar. It was getting the 160 160. So they had to get in there, take their FX reserves and try to sell dollars by yen to try to prop up the yen against the dollar. And this is while their central bank is increasing rates while the Fed is decreasing rates, which if it was all about interest rate differentials, you would have seen the yen skyrocket relative to the dollar. Meaning in this chart, the yen, this chart would have gone down because this is how many yen there are to $1. So you would not see the yen at 152. You'd see the yen at 100. You'd see the yen at 90. something like that. So my point here is that this whole idea, this hypothesis is also dependent on something that isn't always true. I mean, this is never true that the Fed can control how hot the economy is or how not hot. And the Fed control the labor market. That's never ever true. Um, but the interest rate differentials sometimes so, sometimes not. and over long periods of time more so not. So you see and and this is what we do. We we build these narratives based around things that we present as though they're fact and as though they're just written in stone when often it's the complete opposite. Not only are they not written in stone that these things that we present as just given rules are the the opposite is usually true. Okay. So the US dollar we got that US yield curve will undergo bare steepening as US inflation expectations ratchet higher. So here I got to give him credit because he's not talking about uh you know the reason for the long end of the curve blowing out like most people where this is just due to debt and deficits and issuance and foreign sovereign wealth funds dumping treasuries and all these things. He's just talking about it going up due to growth in inflation expectations. So there give him a a big round of applause meaning T-bonds uh would underperform cash. Okay, stocks can perform and then he goes into it. So the the reason and by the way this is the chart that he gives showing that labor demand is now more so in line with labor supply where we demand has been way higher than supply for many years which most people would say would not necessarily lead directly to consumer prices going up but it would be an inflationary pressure because if demand is so much higher than supply labor then the only way that that can sink link up is if the employers offer higher wages, okay, or just reduce workers. So, but but the thing here that we're not noticing is we're assuming that this is going to stay the same and now that we've meet or met an equilibrium that this is just going to be flat on a move forward basis. And I don't know I mean I don't know. I'm looking at this chart and [laughter] it it seems like it seems like it's going one way, especially the labor supply. Labor demand is flattened, which ain't a good sign. But then we see labor supply just go from the bottom left to the upper right almost in a straight line. So why should we believe that this light green line will just flatline from here? I mean, you follow the trend. Isn't it going to go up? If this goes up and this stays flat, now all of a sudden you've got way more supply than you have demand. And instead of being an inflationary pressure, that would be a disinflationary pressure, if not a deflationary pressure. So then again, h how does the Fed get the inflation up to 3.5% in that type of environment? Well, regardless of the environment, the Fed can't control it. But even if they could, it would be a lot harder uh for them to do so. All right. So, now let's go over to the bond market. This kind of ties things in a very nice bow. So, over the last uh five days, let's look at that. This is the 10-year Treasury rules use as a proxy right here. You guys know what happened because you're watching my videos. This is when we had the surprise for the jobs market for the non-farm payrolls. It went up to 130,000 when the expectation was for 55. So, whoa, knee-jerk reaction. what are you going to have growth in inflation expectations increase. So you would expect exactly what we saw and that's for the yields to go vertical. But then what happened is you dig a little deeper into the report and you see oh my gosh look at the revisions. Yikes. Then what do yields do? They go down. They go down even further. And then what happens is today we get a uh we get a lower than expected CPI and yields go down even further. So right now we're trading at 4.06 when after the knee-jerk reaction from the non-farm payrolls we were up at 4.2. So you got to ask yourself, let's just say it's a 14 basis point move. What caused this? What caused this? Did we somehow reduce the deficit? Did the Dutch sovereign wealth fund all of a sudden say, "Oh, instead of selling treasuries, we're going to start buying treasuries." Did Scott Bent say that he was going to issue fewer treasuries in the future? Did we lower the debt? Did the debt to GDP go down? No. None of those things. In fact, all the the the opposite. The sovereign wealth funds are still dumping. The central banks are still dumping. The uh debt and deficits most likely are increasing or at least the expectations aren't for them to decrease. The debt I can assure you [laughter] I can assure you the debt hasn't gone down. And so the only conclusion that you come to is oh it's about growth and inflation expectations. It's not about debt deficits, issuance or dumping. And if it is about that, then most of the narratives around uh the bond market or interest rates or inflation, disinflation, inflation, their starting point is incorrect. So now let's go back to the CNBC and let me give you my prediction. Um, oh, we're kind of bouncing around here. I forgot we Let's There we go. Perfect. So, where would I say we're going to go from here? Honestly, I I would keep it the same and that I don't see why we'd really get above 3.3 and I don't see why we'd get below 2.3. um unless something really changes. So if we have a a um recession, an economic contraction, especially one that is defined by the NBER, then you're going to see it go below two, not just 2.3. You're I would definitely expect it to go below 2%. And then if I don't know Trump comes out with STEMI checks or UBI or something that's not just deficits but it's velocity velocity velocity just like we had during the surveys sickness then all of a sudden I would expect it to go higher than 3.3. But those are really fundamental kind of shifts in the economy. So outside of the fundamental shift, something major happening. I don't know. I think we just kind of are in this range for the indefinite future. You guys know my base case. If I had to choose one, you know, are we going to accelerate nominal GDP due to velocity from STEMI checks or UBI or something like that? Um, maybe. But I would error on the side of the economy slowing down, not speeding up. Therefore, I would be in the camp of disinflate, not deflation, but disinflation as measured by the CPI. Not that I buy into the actual price increase that is reflected by the CPI. Those are two different things. [laughter] All right, guys. I want to remind everyone that we've got tickets on sale for Rebel Capitalists Live. This is going to be the incredible event the end of May. My goodness. Who are the speakers here? Look at these guys. Woohoo. We got Brent Johnson, my good buddy Kiasaki, Darius Dale there for the first time. Jeff Snyder, Rick Rule, Mike Green, Barnes. I'm sure he's going to be talking about Epstein, that's for sure. Kenny Maroy and Hartman talking about real estate. We're going to have a few more speakers that we're going to add to the list. So guys, this is an event that you are not going to want to miss. You got to get your tickets ASAP because as we get closer to the event, you guys know the drill, the price goes up. So Josh will go ahead and put a link in the chat and in the description of this video. Head over there, get your tickets ASAP and I will see you the end of May in Orlando on that bombshell. Enjoy the rest of your afternoon. As always, make sure you're standing up for freedom, liberty, free market, capitalism, and we'll see you in the next video.
New CPI Data Is Moving Markets (What You Need To Know)
Summary
Transcript
Hello fellow Robo Capitals. Hope you're well. New inflation data really moving the markets and we've got a lot of people talking about how the Fed with a new Fed chair possibly is going to run the economy hot and what does that mean for the dollar for interest rates for future CPI? So, we're going to go ahead and go through the data today, but we're going to try to look out into the future and ask the question, what happens next? The allimportant question. All right, let me do the screen share. Josh is swiping on Tinder somewhere or maybe Grinder. You decide which one is probably more accurate. And while Josh is swiping on Grinder, [laughter] we're going to go over to where do we start? Let's do CPI or excuse me, let's do CNBC. So punchline, guys, the expectation was for 2.5% month overmonth, 3% and it came in low. It came in low. Now, you may be asking yourself, George, in the thumbnail, you're talking about running it hot. Well, how can you say that when the CPI came in lower than expected? Aha, that's we're going to look out into the future. We're going to get into that next, but let's go into the dirty details here. Consumer prices rose 2.4% annually in January, less than expected. The consumer price index for January accelerated. Okay, we got that.3 percentage points from prior month, the lowest since May of 2025, excluding the volatile food and energy. I'm in fact, I'm shocked how what they said food and energy without prefacing with volatile. What is going [laughter] Whoa. Whoa. That's the big news of the day. Forget the CPI. [snorts] [laughter] All right. All jokes aside, get back to a core CPI was up 2.5%. So, headline 2.4 core excluding the volatile food and energy 2.5%. Economist surveyed by Dow Jones. Yes, we know they were expecting a 2.5. So, let's get into the charts, guys. Get a visual representation of what's going on here. This was way back summer of 2022 and we've got to pat ourselves on the back for this one at this channel because I was really talking about inflation here and the survea sickness lockdowns the government's response to the survea sickness causing the supply shortages which really juiced prices along with all the STEMI checks excess aggregate demand artificial temporary aggregate demand by the way and then right here kind of all that stuff stopped. So I I thought to myself, well, I'm going to take a more disinflationary stance. That's my base case. And since right about here, I've said, look, we probably float around this area until we get something big. You know, we get UBI. All right. Now, I'm going to go ahead and get back over to the inflation camp. And if we get a big recession, okay, probably going to drop under 2%. But if we don't get either of those, if we're in this kind of holding pattern, I don't know why we'd go below 2.4, 2.3, and I don't know why we'd go above, call it 3.2, 3.3. And that's exactly what we've done. Exactly what we've done. So, as far as our inflation prediction that we have had on this channel, we've had it spot on. We've had it spot on pretty much going all the way back to the surveys sickness. So, that's really good. But you can see the trend here, and that's what I want to highlight. The trend is obviously disinflationary. Now, I know a lot of you are saying, "Oh, Georgia's understates inflation." Yeah, I get it. I get it. I totally agree with you, by the way. But what we're doing here is we're not saying that goods and services are going up by 2.4%. Look at the CPI. That's not what I'm doing. I'm saying we are seeing disinflationary pressures override everything else. Meaning that right here the real rate of inflation was probably higher than 9%. And today the real rate of inflation probably 2.4. But the trend the trend is most likely the same. Still the same. Okay. So now let's keep going here and we're going to look at the kind of the monthly figures as and you can see this big ramp up with CPI peaking with a month over month at 1.2 two and that was back in the in the uh summer of 2022. We're just saying and then it really falls off a cliff and then since that time lower we had a couple negatives in here by the way and then we get this 2% today month over month. So they point out that there's some economists that say this could be attributed to the government shutdown and I I don't know. They're always trying to just give some excuse as to why something happened, weather, blah blah blah blah blah. And then of course they always have to try to throw Trump under the bus. So they're going to say, "Oh, well the inflation rate would have been lower. It would have been right around the Fed's target if it wasn't for Trump's tariffs. Now, are the tariffs contributing to prices being a little higher than they otherwise would be? Probably. Probably. But my point here is whatever whatever Trump does, they're just going to be they have to always kind of take a stab at him or highlight something that they perceive to be negative. It's something we just expect from the mainstream media. They say at the macro level, US has shrugged off slow start to 2025. At a macro level, it has shrugged off a slow start. Okay. in 2025 and has been barreling forward ever since really now. I know that GDP has is skyhigh and that looks like we're running on all eight cylinders, but I would ask you guys right now in the chat, you know, do do you feel like the economy is booming? Do you feel like in 2025 we were off to the races? My guess is probably not. Okay, let's get back to it here. What I want to do now is go over to the uh let's go over to the actual calendar here just so we can get the overview and what we're looking at right here. You can see the 2% 2% excuse me month over month what we were talking about the annual 2.4 four and then the core at three and then the 2.5. That's what we were referring to earlier. But now let's go over now that we've seen the trend. Right now, let's go over to this idea because I hear it all the time on the mainstream media and especially in social media where the Fed is going to try to run it hot. They're going to run the economy hot. We always hear this. They're going to run the economy hot. Well, why are they going to run the economy hot? Well, because the the debt's too high, because the debt is unsustainable. So, we need to run the economy hot and therefore that gets debt to GDP down. What's interesting about that argument is we never stop and ask why we want to get debt to GDP down. Like why? Okay, it's based on the way you calculate it 100% maybe 120%. Why do we want to get it down? Now, I'm not saying that we don't or we shouldn't, but I'm saying why. Why? What? What's the reason that most people would give as to why we want to get the debt to GDP down? Well, they would say the debt is unsustainable. Okay, what do they mean by that? What they mean by that is if we hover around these levels, let's just say 100% 110%. for a certain amount of time or if it continues higher let's say 120 130 then all of a sudden we are going to cross this magical threshold in the Treasury market where interest rates at the long end of the curve will just skyrocket will just skyrocket because the debt to GDP is just too high and if interest rates skyrocket then this creates this doom loop where the interest rate on the debt goes higher, the overall debt. And that means that it, you know, now all of a sudden that the tax receipts, let's say it's three trillion a year, are 100% go just to pay off the interest on the debt. And then what's going to happen? Well, then the treasuries bust and then no one's going to want our treasuries. And then we're going to have to issue more because we got to pay higher interest on the debt. But those get continually higher interest rates because no one wants our debt and therefore the Fed has to come in and do QE and then that crashes the US dollar. So we all understand, we've all heard this narrative a thousand times. But what we have to start with is the fact that all of this is predicated upon the debt to GDP crossing some imaginary threshold and blowing up the bond market. And what that means is there would need to be a disconnect between growth and inflation expectation and yields. So even though yields have been trading on growth and inflation expectations for the last 75 years in the United States, all of a sudden if we get to if we're at 120% debt to GDP right now, if we get to 121, then all bets are off and we're after 75 years or 100 years or however long you go back, the whole history of the United States, our Treasury market is trade on growth and inflation expectations. Once we go from 120% debt to GDP to 121%, all that changes. All that changes and the Treasury market is no longer going to trade off of growth in inflation expectations. You see, this is what the whole argument is predicated upon and the fact or not the fact but the idea that the Fed controls interest rates and the Fed controls the rate of inflation. Okay. So, now that we've established that the the fundamentals there of the analysis and the narrative, let's go ahead and read this article because now what we're doing is we're trying to project out into the future to see what inflation will be. Let's just say in 6 months, a year, something like that. So, this is uh Daval is the guy's name of BCA Research. I don't know who this is, but the uh headline here on his Zero Hedge post is Worsh likes it hot and will move the Fed's inflation target to 2.5 to 3.5%. Okay. And maybe maybe he does move the target from 2.5 to 3.5%. But immediately you see the flaw. And the flaw in this logic is that the Fed will somehow meet this target. So now let's think it through. The Fed has had an inflation target. I mean, ever since I've been even watching this stuff, but they obviously had an inflation target throughout the 2010s. Were they ever able to meet that inflation target? The answer is no. No. Maybe they did a quarter or something like that. maybe a month, [laughter] but for the most part from 2010 to 2020, they weren't able to meet their inflation target. For them, inflation was too low back then. Remember those days? And then all of a sudden, we had the survea sickness and the inflation rate skyrockets. I mean, we just saw a chart of that going back to this CNBC article. That's what we see right here. And then inflation is way above the 2% target. And to this day, it's still above the 2% target. So wait a minute here. So for the last 15 plus years, 15 years, the Fed has never ever been able to meet their inflation target. Either they've been too low or they've been too high. 15 years. We're not talking about 15 months. 15 years. And they've never been able to do it. But yet now all of a sudden moving forward, we're supposed to assume that if the Fed wants to get inflation from 2.5 to 3.5 or if they want to get inflation to two or one or whatever they want, they're going to be able to do it even though they haven't been able to do it for 15 years. Let's keep going here. So, the Fed will run the economy hot as if they can [laughter] or as if they can just turn that dial because the labor demand supply now in balance both uh demand and supply must expand to keep uh output expanding. And then this assumes that they control the labor market. That just by them going out in there and raise or lowering interest rates, that's somehow going to give this massive stimulus and boost to the labor market. Okay. Well, let's think that one through because the Fed has been dropping rates all of 2025. Remember 2024, uh what was it? uh September of 2024 going into 2025 they dropped interest rates by 100 basis points and how many rate cuts did they have in 2025 right off the top of my head I was it a couple two three something like that so they since September of 2024 let's just say they've cut interest rates by 150 basis points 150 basis points okay great what has the labor market done since that time It's tanked. It's it's it's fallen off a cliff. It's negative non-farm payrolls. It's all these things that we talk about on this channel all the time. So, the labor market is in shambles even though the Fed has been dropping interest rates. So, again, you see what I'm saying? It's the Fed's only tool here is really QE or dropping rates. And when they talk about the labor market, they're really more so focusing on the rate side of that. So even if they do drop Fed funds, are we to assume that this is going to somehow impact the demand supply balance or imbalance? No. Why? It's never done in the past. So why should we assume that it'll have some effect in the future? You see, and what this always goes back to is that interest rates don't control the economy. You guys know this. interest rates are a reflection of what's happening in the economy. So, here we go. Let's keep going. Short-term US real rates will come down further because the Fed will continue to cut even though inflation uh with inflation from 2.5 to 3.5%. And this assumes they can get at that level and today we're at 2.4. Uh the US dollar will continue to weaken given the currency's dependence on real interest rate differentials. This is another [laughter] another fallacy. And I don't mean to pick on this guy because he's just reiterating all these uh mainstream narratives that you hear all the time. So, I don't want to really single him out, but um let's think that one through because do interest rate differentials matter? Yeah, some of the time, but then other times they don't. Like, let me give you a great example. Let's go over to CNBC and let's go ahead and look at uh the yen. So, you guys know that the Bank of Japan has been raising rates, raising rates, and the Fed has been cutting rates like we just said, but during the last year or so, has the yen appreciated dramatically, as you would expect with the interest rate differences? No, it's flat. And by the way, the only reason it's flat is because the Bank of Japan has come in and their politicians, their central planners on multiple occasions and said that they're going to prop up the yen because the yen was getting too weak [laughter] against the dollar. It was getting the 160 160. So they had to get in there, take their FX reserves and try to sell dollars by yen to try to prop up the yen against the dollar. And this is while their central bank is increasing rates while the Fed is decreasing rates, which if it was all about interest rate differentials, you would have seen the yen skyrocket relative to the dollar. Meaning in this chart, the yen, this chart would have gone down because this is how many yen there are to $1. So you would not see the yen at 152. You'd see the yen at 100. You'd see the yen at 90. something like that. So my point here is that this whole idea, this hypothesis is also dependent on something that isn't always true. I mean, this is never true that the Fed can control how hot the economy is or how not hot. And the Fed control the labor market. That's never ever true. Um, but the interest rate differentials sometimes so, sometimes not. and over long periods of time more so not. So you see and and this is what we do. We we build these narratives based around things that we present as though they're fact and as though they're just written in stone when often it's the complete opposite. Not only are they not written in stone that these things that we present as just given rules are the the opposite is usually true. Okay. So the US dollar we got that US yield curve will undergo bare steepening as US inflation expectations ratchet higher. So here I got to give him credit because he's not talking about uh you know the reason for the long end of the curve blowing out like most people where this is just due to debt and deficits and issuance and foreign sovereign wealth funds dumping treasuries and all these things. He's just talking about it going up due to growth in inflation expectations. So there give him a a big round of applause meaning T-bonds uh would underperform cash. Okay, stocks can perform and then he goes into it. So the the reason and by the way this is the chart that he gives showing that labor demand is now more so in line with labor supply where we demand has been way higher than supply for many years which most people would say would not necessarily lead directly to consumer prices going up but it would be an inflationary pressure because if demand is so much higher than supply labor then the only way that that can sink link up is if the employers offer higher wages, okay, or just reduce workers. So, but but the thing here that we're not noticing is we're assuming that this is going to stay the same and now that we've meet or met an equilibrium that this is just going to be flat on a move forward basis. And I don't know I mean I don't know. I'm looking at this chart and [laughter] it it seems like it seems like it's going one way, especially the labor supply. Labor demand is flattened, which ain't a good sign. But then we see labor supply just go from the bottom left to the upper right almost in a straight line. So why should we believe that this light green line will just flatline from here? I mean, you follow the trend. Isn't it going to go up? If this goes up and this stays flat, now all of a sudden you've got way more supply than you have demand. And instead of being an inflationary pressure, that would be a disinflationary pressure, if not a deflationary pressure. So then again, h how does the Fed get the inflation up to 3.5% in that type of environment? Well, regardless of the environment, the Fed can't control it. But even if they could, it would be a lot harder uh for them to do so. All right. So, now let's go over to the bond market. This kind of ties things in a very nice bow. So, over the last uh five days, let's look at that. This is the 10-year Treasury rules use as a proxy right here. You guys know what happened because you're watching my videos. This is when we had the surprise for the jobs market for the non-farm payrolls. It went up to 130,000 when the expectation was for 55. So, whoa, knee-jerk reaction. what are you going to have growth in inflation expectations increase. So you would expect exactly what we saw and that's for the yields to go vertical. But then what happened is you dig a little deeper into the report and you see oh my gosh look at the revisions. Yikes. Then what do yields do? They go down. They go down even further. And then what happens is today we get a uh we get a lower than expected CPI and yields go down even further. So right now we're trading at 4.06 when after the knee-jerk reaction from the non-farm payrolls we were up at 4.2. So you got to ask yourself, let's just say it's a 14 basis point move. What caused this? What caused this? Did we somehow reduce the deficit? Did the Dutch sovereign wealth fund all of a sudden say, "Oh, instead of selling treasuries, we're going to start buying treasuries." Did Scott Bent say that he was going to issue fewer treasuries in the future? Did we lower the debt? Did the debt to GDP go down? No. None of those things. In fact, all the the the opposite. The sovereign wealth funds are still dumping. The central banks are still dumping. The uh debt and deficits most likely are increasing or at least the expectations aren't for them to decrease. The debt I can assure you [laughter] I can assure you the debt hasn't gone down. And so the only conclusion that you come to is oh it's about growth and inflation expectations. It's not about debt deficits, issuance or dumping. And if it is about that, then most of the narratives around uh the bond market or interest rates or inflation, disinflation, inflation, their starting point is incorrect. So now let's go back to the CNBC and let me give you my prediction. Um, oh, we're kind of bouncing around here. I forgot we Let's There we go. Perfect. So, where would I say we're going to go from here? Honestly, I I would keep it the same and that I don't see why we'd really get above 3.3 and I don't see why we'd get below 2.3. um unless something really changes. So if we have a a um recession, an economic contraction, especially one that is defined by the NBER, then you're going to see it go below two, not just 2.3. You're I would definitely expect it to go below 2%. And then if I don't know Trump comes out with STEMI checks or UBI or something that's not just deficits but it's velocity velocity velocity just like we had during the surveys sickness then all of a sudden I would expect it to go higher than 3.3. But those are really fundamental kind of shifts in the economy. So outside of the fundamental shift, something major happening. I don't know. I think we just kind of are in this range for the indefinite future. You guys know my base case. If I had to choose one, you know, are we going to accelerate nominal GDP due to velocity from STEMI checks or UBI or something like that? Um, maybe. But I would error on the side of the economy slowing down, not speeding up. Therefore, I would be in the camp of disinflate, not deflation, but disinflation as measured by the CPI. Not that I buy into the actual price increase that is reflected by the CPI. Those are two different things. [laughter] All right, guys. I want to remind everyone that we've got tickets on sale for Rebel Capitalists Live. This is going to be the incredible event the end of May. My goodness. Who are the speakers here? Look at these guys. Woohoo. We got Brent Johnson, my good buddy Kiasaki, Darius Dale there for the first time. Jeff Snyder, Rick Rule, Mike Green, Barnes. I'm sure he's going to be talking about Epstein, that's for sure. Kenny Maroy and Hartman talking about real estate. We're going to have a few more speakers that we're going to add to the list. So guys, this is an event that you are not going to want to miss. You got to get your tickets ASAP because as we get closer to the event, you guys know the drill, the price goes up. So Josh will go ahead and put a link in the chat and in the description of this video. Head over there, get your tickets ASAP and I will see you the end of May in Orlando on that bombshell. Enjoy the rest of your afternoon. As always, make sure you're standing up for freedom, liberty, free market, capitalism, and we'll see you in the next video.